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Santa Comes Early - Top Picks For December

Dec. 03, 2021 8:35 AM ETCSWC, EPD68 Comments

Summary

  • Two excellent picks to end your year off right.
  • From Thanksgiving to Tax-loss selling season, new opportunities abound.
  • Grab some Hot Cocoa and let's dive in.
  • Looking for a portfolio of ideas like this one? Members of High Dividend Opportunities get exclusive access to our model portfolio. Learn More »

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Thanksgiving is over, Christmas is coming. Welcome to December folks.

I have always pictured December being the month where snow is ever-present on the ground and people embrace the fact that we'll

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This article was written by

Rida Morwa profile picture
105.17K Followers

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of EPD AND CSWC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (68)

w
Any defense of KNOP?
u
From above, " . . .it has achieved the impressive feat of raising its dividend for 22 consecutive years." I find the 2014 dividend at 72 cents then cut in half to 37cents. 2014 is only 7 years ago so what am I missing?
houtex profile picture
@user43812966
Unit split.
“Oct. 10, 2014-- Enterprise Products Partners L.P. (NYSE: EPD) announced today that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.365 per common unit, or $1.46 per unit on an annualized basis. The quarterly distribution … represents a 5.8 percent increase over the $0.345 per unit distribution (as adjusted for the two-for-one split of Enterprise’s common units in August 2014), declared with respect to the third quarter of 2013.”
PendragonY profile picture
@user43812966

You are missing the 2 for 1 stock split in 2014. Which happened just after the pay date for the Q3 dividend. So you had 2x the number of shares. What looks like a cut is actually a half-cent increase per new share.
s
Since EPD issues a K-1, does this only affect the Federal Tax in the USA or does it also affect state taxes?
Rida Morwa profile picture
@springman38 US citizens would want to discuss with their local tax professional regarding state tax filing requirements.
p
@springman38 I hand all this krapp to the tax guy, come back in a week, sign it, and send it in.
a
@pyrotechnic67 Likewise...don't wanna worry about it...hire someone smarter than myself about taxes...it's what they're for...
JonFund profile picture
You state that "the pullback offers us a good buying opportunity". This "pullback" has been going on the past 7 years now.
Rida Morwa profile picture
@JonFund Before COVID, EPD had traded rangebound from $25-$30 for many years, with a steadily rising dividend.
p
@Rida Morwa True enuff, and it's one of the parameters I look at when I consider buying a stock. Assuming price performance for a stock that primarily is regarded as an income vehicle (BCDs, MLPs, etc.) was 'normal' pre-bug, how has the price performed since the pandemic hit. EPD is a stock that still has a way to go to get back to it's mean and I view that as a good thing, and a reason to be comfortable buying more of it.
MWRKY profile picture
MWRKY
03 Dec. 2021
Bought EPD in July and am currently down 10% so hopefully this turns around. CSWC looks promising but I already own several BDCs so I might pass on tis one.
Rida Morwa profile picture
@MWRKY EPD will provide you solid income for decades to come. Its price has been lagging recently, making it a prime Dec buy.
Joe Eifrid profile picture
@Rida Morwa can you expand why you think EPD is a tax loss candidate? It appears it is up 5% for the year.
Rida Morwa profile picture
@Joe Eifrid It is up for the year, but there was a lot of volume with people buying over the summer when it was $23-$25. You don't have to buy a stock early in the year in order to realize a tax loss. People who bought from March to mid-August are sitting on unrealized losses and might have a bearish outlook in the short-term. It is down 18% from 52-week highs, so that means a lot of people are likely down in the 10% range. Those who are sitting on 10-15% unrealized losses are likely to consider tax-loss selling as an option.
PunkRockClub profile picture
Thanks to HDO's extensive coverage of CSWC and EPD I researched both a few months back, and have started small positions in each. CSWC might be the sleeper, as it is difficult to get accurate, up to date and complete numbers, and many sites have the numbers flat wrong! For those having trouble, check their website.
Thanks again and again Rida and crew for all the great ideas, research, and esoecially for writing readable articles!
Rida Morwa profile picture
@mrfike You are very welcome! Thank you for your kind note.
z
Just curious how you get CSWC at 8.9% yield? Dividend on Schwab and SA is 7.03%.
Treading Softly profile picture
@zcoblens They're likely missing the special dividends
b
@zcoblens The dividend and special dividend combined look like 3.5% in just one day, on Dec 31. You have to buy by Dec 13 to get paid. Nowhere will you get paid such a high percentage quicker.
G
I picked up UNM the other day. Nice yield and reckon it might do well in rising rate environment.
O
@Gladiator321 nice, they recently raised their dividend ,I own this is well .

Fish
snaimpally profile picture
Thanks for the article. I have owned CSWC for over a year and had a nice capital appreciation while collecting the dividends. I may add to my position. I don't know what the deal is with EPD. I am waiting for it to find a floor before buying.
Rida Morwa profile picture
@snaimpally You are very welcome!
Y
@snaimpally buy, collect your dividends and sleep well. Focus on income not price! One of the best stock for an income investor & cash flow no withdrawal retirement! A true income factory with MPLX & ONEOK.
P
Disclosure: I also have a beneficial long position in the shares of CSWC through stock ownership

i got into it after one of your last articles
good pick for my Roth
full position
Rida Morwa profile picture
@PickleNick I'm glad you got a full position!
PendragonY profile picture
@PickleNick

I wish I bought CSWC when I first wrote about it. But didn't and waited till we were covering it at HDO. Still worked very well for me.
j
I believe ET will be increasing the dividend.
Rida Morwa profile picture
@jconwaysr44 I think they need to focus on debt first, but we shall see.
p
@jconwaysr44 Their chart looks like a downhill ski slope. Too much debt. I don't trust them.
j
Thanks Rida I have owned both for over 2 years and have no plans to sell either. I guess I was being a bit rhetorical but am finding it hard to reconcile the apparent difference in value.
Rida Morwa profile picture
@jconwaysr44 I'm glad you enjoy both!
d
CSWC is going to really gap down after the Dec 15 EX. It always gaps down after EX but in this case, the div is v. large. Comments? thanks
Rida Morwa profile picture
@drjoanv It will gap down but I expect it to recover swiftly.
j
Just using Yahoo numbers for a quick look ET has a smaller enterprise value and 2x the ebitda of epd. Morningstar has a fv of 16.5 for ET which I think is down from 20 last year. ET also has an investment grade rate. Can anyone offer an opinion for the difference which isn't just a knock on Kelcy Warren.
Rida Morwa profile picture
@jconwaysr44 ET done multiple stealth dividend cuts while EPD has raised steadily. That is a non-knocking KW difference.
T
@jconwaysr44 I believe one distinguishing point for EPD is that it is making considerable investment in downstream chemical processing infrastructure.. return in form of growing chemicals and plastics business over a 10 to 15 year perspective and diluting down the transmission component of income.
Jared Krongold CMT profile picture
@Rida Morwa Every time I want to buy another midstream besides EPD, I consider the difference in yield and quality of the company/management and come to the conclusion to just buy more EPD!
ndardick profile picture
2 best picks: EPD and EPD.
dtretire profile picture
@ndardick Why not EPD and MMP?
Rida Morwa profile picture
@ndardick Not the best three? LOL
ndardick profile picture
@dtretire Probably because I own EPD and not MMP, although it's certainly a legitimate investment in the pipeline space. I think that EPD has better dividend coverage and wider range of fluids that can flow through their pipelines.
d
Great article! As a European investor, MLPs are a non-option for me due to the absurd 35% tax hammer imposed on non-US investors. I have yet to find a good fund for MLPs that allows me to get exposure without buying the MLP directly and without losing most of the profits again via management fees.
I’m very long $CSWC however, one of my largest holdings.
Franz-Joachim Kauffels profile picture
@domdom82 Yes, You are right and in EU we are doomed, I live in Germany. But if You look to an alternative I could recommend Antero Midstream AM, which not issues K-1. You will find a recommendation for this from Rida if You go to the white searching field top left and enter "Antero Midstream" or "AM" All the best :-)
Rida Morwa profile picture
@domdom82 Thank you! I understand MLPs can be difficult to hold for non-US investors. Canadian options like PBA and ENB can be attractive routes to get good midstream exposure.
J
@domdom82 is some ETF an option for us in EU if we want something in this sector? Like AMLP, dividend over 8%..? Any experience with this?
rickevantodd profile picture
Good article. Are you concerned about the premium to NAV that CSWC sells at?
PendragonY profile picture
@rickevantodd

I look at how much cash CSWC pays me and how much I have to pay to get it. The dividend is well covered, and the price relative to the dividend is good. Since they don't seem to be eroding NAV to pay me, I don't worry a lot about the "premium".
b
@PendragonY I'm building CSWC to get paid 3.5% (.97/$27.00) in a day, Dec 31. Will have to see about after that bc EARN and EFC are paying 11% and 10.5% and paying monthly.
rickevantodd profile picture
@PendragonY Thanks for the response. A reasonable position.
Income4ever aka Cyclenut profile picture
Nicely done

Some have compared CSWC to MAIN , albeit it a mini MAIN without the exorbitant premium...
Long EPD and adding on dips... love the additional tax advantages MPLs offer its like adding 12% on top of the distribution
Also long MAIN
Rida Morwa profile picture
@Income4ever aka Cyclenut I'm glad you enjoyed our report!
p
@Income4ever aka Cyclenut MAIN is too stingy with it's payout. Widows and orphans stuff.
Anthony Ruben profile picture
I own EPD, and in fact had an order in yesterday that didn’t get filled. Obviously l, I respect the model and distributions, but looking at the chart suggests something other than a ‘set it and forget it’ 8% yield. There is volatility, and while I am comfortable, it is certainly not a sure thing or layup 8%.
Rida Morwa profile picture
@Anthony Ruben EPD is a prime tax loss selling candidate and we are seeing a classic drop pattern after the last ex-div of the year. Its selling for higher than historical yields and likely will recover come late dec early jan.
S
@Rida Morwa Good article as usual. that said, we are in the very beginning stages of a market meltdown. EPD has broken the major trendline and could easily decline 50%....longer term, it's a great MLP.
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